Spain faces weeks, months of political uncertainty, Citi says

Spain faces heightened uncertainty as the country's main political parties try to thrash out a stable and workable coalition over the coming weeks and months, posing downside risks to the ongoing economic recovery, analysts at Citi said in a research note sent to clients.

Over the last weekend, the leader of the conservative Popular party, Mariano Rajoy, declined the invitation from the country´s monarch to form a government, as his was the most voted party at the 20 December national elections.

That increased the probability that the Socialist PSOE party would form a Portuguese-style left-wing government in Madrid, although the Socialists' ability to craft a broad left-wing coalition was by no means certain, the broker added.

PSOE leader Pedro Sanchez would need to win over those within his party opposed to a deal with the far-left wing Podemos party and possibly also require the support of pro-seccessionist parties in some of Spain´s regions and even of the centre-right Citizens' party (whose leader is on record as saying it will not govern with Podemos as long as it supports calls for an independence referendum in Catalonia).

"Failure to secure a left-wing pact would probably push PSOE to eventually allow a PP-led minority administration, in our view. A new round of national elections, if indeed no consensus is found, remains also a clear possibility," Citi said.

Indeed, on Tuesday Spanish broadcaster Telecinco reported that Spanish ex-Socialist Prime Minister Felipe Gonzalez - who retains some influence withing the ranks of PSOE - was advocating a coalition between the centre-right Popular and Citizens parties. The Socialists would abstain when it came time to vote in the new government, paving the way for them.

However, Gonzalez was also said to believe that an agreement between the three parties for a short government and a detailed calendar needed to be put in place beforehand.

In comments to Digital Look earlier on Tuesday, political experts in Madrid broached the exact oppositive as a workable alternative; that is to say, a coalition between Socialists and the centre-right Citizens part put in power thanks to the abstention of Podemos.